Tuesday, November 22, 2016

The chart to the right predicted that by 2019 the national debt would top 12 trillion dollars. Projections made by the government or any group predicting budgets based on events that may or may not happen at some future date are simply that, projections or predictions and not fact. This means that such numbers are totally unreliable.Sadly, as we move toward President-elect Trump taking office in early 2017 the National Debt Clock may already have breached the 20 trillion dollar mark. Yet, this appears to be raising no red flags as we continue to hear from the media how robust economic growth has helped push the U.S. budget deficit down to the lowest level since 2008. Claims bantered about by Washington and the media of the sharpest turnaround in the government’s fiscal position in at least 46 years are targeted at reassuring America that all is well.

Many tricks are used to confuse the issue and muddy the waters when we talk about the debt, one of these is which administration, or President, to blame. While Bush left office with the economy in the sewer most the resulting deficit occurred on Obama's watch. Over the last few years, the Obama administration has touted how the deficit is dropping and the economy is on the mend. Don't expect a chart put out by somebody with an agenda to clarify this issue, long ago I learned that looking at a chart to see how we are fairing can be very deceiving, little things like the scale or how they are colored often blur how we interpret their message. This has led some Americans into thinking the worst of our problems are now in the rear view mirror. One thing is clear and that is only by looking back decades do we see just how large this problem has grown.

As things stand America continues to rack up a deficit each year of nearly $2,500 for every man woman and child in the country, such deficits were unheard of in the past unless it was during a major war. Deficit spending has been accomplished by borrowing money that will become a long-term drag on the economy going forward. To make matters worse the government has fiddled away the time in deadlock rather than setting right our system. This means much of this money has been poorly spent in ways that do not address the structural problems that plague our economic future. Even the tailwind of lower energy cost through the massive expansion of oil and natural gas supplies has not been enough to move the economy forward. Much of what we have seen should be considered a "one off" that is behind us. Bottom-line all this trickles down to job growth which has been nothing to brag about when you consider many of the jobs being created are not "quality" or even full-time jobs.

Even though we have seen deficits reach unprecedented levels the deficits in our future will be dramatically worse. Any claim that the Obama administration has the budget deficit back under control is a total lie. We are mired in the midst of the greatest government debt bubble in the history of the world. By our actions or lack of action, we are destroying the future of this nation. Only when we use the massive 2009 deficit as a baseline are we given the impression the budget is back under control, it is clear that 2009 was an unplanned budget disaster and should never be used as our reference point. The ugly truth many people choose to ignore is that starting in 2017 entitlements will become the driving force that carries the deficit higher and higher into nosebleed territory.

Negotiating the financial cliff and muddling through what was described as a draconian sequestration has emboldened many Americans and left them feeling immune to economic reality, this is the foundation of a financial disaster. To the American people, a rising deficit that has yet to yield dire consequences has given us a false sense of security. It is also clear is that running up debt is far easier than paying it off. we should also be aware that figures released by the U.S. Treasury are for public consumption and it relies on accounting tricks which massively understate how much debt is really being accumulated. The myth that a scenario of growth coupled with a falling deficit will allow us to outgrow many of the problems we face brings with it a false optimism and hope.

If you want to know what the real budget deficit is, all you have to do is go to a U.S. Treasury website which calculates the U.S. national debt. On November 1, 2013 the U.S. national debt was sitting at $17,108,598955,343 just a year later on October 31, 2014 the number has risen to $17,937,160,394,872 . That means that the U.S. national debt actually grew by 829 billion in less than 12 months. The fact is with the artificially low-interest rates of today many people seem to have little desire to cut spending. We are literally gorging on debt, and most Americans seem to think that it is just fine and dandy to wildly run up debt as if there is no tomorrow. Way back in2011 the "Gang of Six" committee’s bipartisan plan proposed three dollars of budget cuts for every one dollar in tax increases, after much tough talk this has all been forgotten. The irony is that today lawmakers, claiming to be "austerity-weary" are again looking at boosting spending on both defense and infrastructure programs.

Friday, November 18, 2016

Creating jobs in a mature market or economy poses difficult challenges.
Globalization has elevated the importance of creating jobs and a
balanced economy that supports a strong middle class. The recent presidential election has again brought the issue of
creating jobs front and
center. As the forces of automation and robotics grow stronger this will become even more crucial. A look at our monetary policy and general government policy makes it clearthat Janet
Yellen and many of the people in
Washington remain clueless in understanding how "real and sustainable"
jobs are created. We must differentiate the difference between creating a valuable and worthwhile product that benefits society and breaking a window then praising the jobs replacing it yields.Creating jobs in a mature market should be required to pass a certain
"taste" test. They should be both long lasting and sustainable in nature.

Joblessness Has Huge Implications For Society

During times when the country and its economy are moving forward
joblessness seems to diminish as an issue, however, it has huge long-term implications and impact on society. The fact
few business owners and job creators have become part of the Washington
establishment may be one of the reasons true job creation seems so misunderstood. It should be pointed out that while America is creating
jobs it is costing a huge amount. I'm referring to the massive
government deficit which I feel is the fuel driving our still rather
weak growth. Is it sustainable, and just as important are these the
right kind of jobs and will they last? When a job that falling outside the
description of government worker fails to make economic sense it
becomes a form of working welfare with society picking up the tab.

We as a country and as a society have paid dearly for each unsustainable
job created through government incentives and partnerships in recent years. Many of these jobs because of their very nature are temporary. A great weakness in government generated jobs is after a huge outlay to
set up, or put them into action, they often do not
create or contribute to production. If these jobs are not asked to
continually justify their cost, and they often are not, they merely
become another burdensome cost to society. The feeble efforts to think
through and link a job to a sustainable economic base that creates a
needed product or generates real value is a major flaw in most
government aided ventures. Once started government sponsored ventures
are often slow to react or adjust to economic reality, this can be seen
in the Postal Service and its inability to drop Saturday delivery.

Two examples of government over involvement come to mind from the city
in which I live, the first I will call Kitty Hawk. In Fort Wayne,
Indiana years ago the city aggressively backed a bond and the loan to
build a massive hanger at the airport for an air-freight company named
Kitty Hawk. The city lured the company to the area because it promised a
slew of new jobs where they located their hub, the company is now
bankrupt and the jobs are gone. The
taxpayers of Fort Wayne are now paying for an empty hanger that they are
trying to lease at an "aggressively" low price. This hurts those private
investors and property owners that lease building space as they are now
forced to compete against the government to which they are forced to pay
taxes.

Another mind boggling, and hard to defend venture is Fort Wayne's
pathetically underused money-losing bus system, Citilink. Every day
buses running their predetermined routes crisscrosses the landscape of the
city completely empty, it is more uncommon to see a rider then not.
Funded by Federal monies as well as local real-estate taxes, most people
give little thought to this economic failure. One could site that the
poor or those without transportation need this service, but the cost of
this inefficient system is huge. Burning through fuel and polluting the
air as they transport so very few riders, it is hard to argue that they
make the city green or that the jobs are economically sustainable.

Another place that governments hurt local businesses is to invite a
company like Amazon into their community by offering tax incentives to
construct a distribution center, as a way to encourage investment or
get new jobs. This often puts a dagger into the hearts of existing
businesses. Any government subsidy that gives one company an unfair advantage over
another tends to lessen the ability of the other to remain competitive,
this often results in the destruction of real jobs. Solyndra, the solar
panel
company that got a $535 million government-backed loan then went
belly-up should be placed in the dictionary and used as a definition as
to what happens
when politicians and bureaucrats and businessman come together to play with taxpayer
money.

Wednesday, November 16, 2016

A word of caution to those who don't know what to make of the wacky markets we have seen since Trump has assumed the position of President-elect. Do not be surprised if the markets remain unstable for some time. On election night as results came in markets in America and across the world plunged only to reverse by morning and then surged higher. This resulted in new all-time market highs that left many traders stunned. We are forced to wonder if the move was because of traders caught sideways ran for cover or some other force put in place prior to results being reported were unleashed against those positioned for falling prices.

Simply put too many variables are in play and now busy interacting to allow for much in the way of sound decision making. More than a few wild cards are being played and the impact of things like China adding liquidity to its banking system is very important and has consequences. This money is rapidly flowing outside its borders distorting markets across the world. Predictions are often wrong and this influx of endless reactions to crazy policy swings make them no more than guessing.

It is also important to remember that not all traders are enjoying a post-election bout of glee. Many shorts and bond holders have been hammered. This week has started with the dollar continuing its surge and pushing the DXY above 100 for the first
time since December of 2015. We are seeing global bond yields soar and emerging market
currencies tumbling. Where the action is different from last week is that reality is starting to set in over growing concerns that a spike in yields will cap the upside of any rally in equities.

Do not be surprised if much of the market action we are witnessing proves to be unsustainable. One example is the action in copper where it blew through resistance and sent bears running to cover even though fundamentals have not changed. While speculation of a coming boom in building moves prices in fact nothing has really changed and we have a long way to go before promises that Trump made during the election can take place. The power of the President is not unlimited and is in many ways dependent upon a larger consensus that results in action.

The Trump victory has added a great deal of material to the debate of where this economy is headed, however, much of it is inconclusive and will have to play out over time. To those of us who have become clinical and question the underpinnings of this economy it may bring some relief but it appears an uphill battle to set right all the ills that confront global growth going forward. Cutting taxes while increasing spending on infrastructure and building up the military does not guarantee success. Unfortunately, such spending will quickly add to our wall of debt. Trump has pledged to rebuild the military and America's infrastructure, a major problem of a war based economy is the issue of sustainability.

As a taxpayer, I would be more reassured if there was more talk about cutting waste and how we are going to pay for the programs being proposed. It is expensive to maintain an army and war is a destructive force. Long gone are the days of conqueringyour enemy then raping and plundering your way to glory and riches. Glaring examples of just how expensive war can be remain fresh in our minds from our recent and continuing excursion into the Middle-East. Infrastructure also has the potential to become a boondoggle with
huge cost overruns and is just a waste of money if allowed to be driven
by political motivations rather than necessity.

Monday, November 14, 2016

A matter that merits attention has become merely a footnote lost in the noise of daily news, these are the events taking place as Iraqi troops and a coalition of anti-ISIS forces try to retake Mosul. The timing is a bit suspect and it could be viewed as a convenient coincidence that forces allied with America descended upon Mosul creating a positive message just as Americans went to the polls, this is coupled with news that a similar attack is starting in Syria against Raqqa the headquarters and capital of ISIS. If someone was suspicious they might think all this beginning in the days leading up to the American Presidential election and being spun in the media as a forthcoming victory was orchestrated to assure voters American foreign policy has not been a dismal failure.

Even though they are in different countries both Mosul and Aleppo stand in the path of the destruction and are being wrecked by the forces of war. Aleppo is of course further down this path as we have seen in photos that have become far too common, these photos depict the total devastation and death modern warfare brings upon those caught in its way. Mosul and the surrounding area in
northern Iraq had in the past housed about two and a half million people. Since being occupied by the Islamic State
of Iraq
and the Levant in June of 2014 many people have fled. Knowing that to stay was to risk your life and the
lives of those with you the population today has declined to around five hundred thousand. Alsumaria News reports Islamic State militants have even deployed armed children in Mosul’s Old City as
means to bolster the impression they are still in control as forces seeking to liberate the city advance.

Adding to the woes of civilians that have remained are reports from U.S. based Human Rights Watch that Iraqi Kurdish
fighters battling the Islamic State have unlawfully destroyed
Arab homes in scores of towns and villages in what may amount to a war
crime. The good news is the operation to liberate the city of Mosul and eliminate the last bastion of ISIS in Iraq has been moving faster than many people anticipated according to Prime Minister
Haider al-Abadi. Still, problems continue to surface, one of the newest is the operation is now being slowed by a wave of car bombs sent by the Islamic State group. Iraqi special forces Maj. Gen. Sami al-Aridi said
Sunday that "there are so many civilian cars and any one of them could
be a bomb." As Iraqi forces try to advance further into Mosul these suicide car bombs have taken a toll.

Mass Executions By ISIS Are Well Documented

The bad news is that before this is over Mosul most likely will be reduced to rubble if what we have seen happen to other cities in the area becomes its fate. Within its borders, it would not be difficult to imagine 100,000 or more of the innocent people trapped within the city killed as troops seeking to eradicate some four to six thousand ISIS fighters go about their task. Death often occurs in a war zone rather indiscriminately and is dealt out to both civilians and combatants. In this case, civilians will be used as human shields, this will increase the toll and carnage.

As for the lucky hundreds of
civilians who fled fighting near Islamic State-controlled Mosul last
week they are stranded outside the city without basic humanitarian assistance. The situation has become so desperate it is said that army
officers have begun distributing rations meant for their
soldiers and buying extra supplies with money out of their own pockets. We have seen this all before, when the smoke clears a campaign will begin to raise massive amounts of money to rebuild and set things right but until then it is suffering and death and nothing we do will change this reality of war. The blood and treasure wasted and spent are in many ways a reflection and the legacy of intervening where you don't belong. When this campaign is over victory will be declared but what exactly will we be celebrating?

Sunday, November 13, 2016

It did not take long for the post-election media coverage to shift focus towards a negative bias. The media has now turned way too much of its focus on protest and plans to destabilize democracy. Post-election news is filling the airwaves in a way that appears almost geared to intentionally stir the pot and emotionally agitate Americans. While the election of Donald J. Trump was quickly declared an earth-shattering event it is not a mandate, our polarized nation remains divided. During the past year more than 70 million
citizens, 59 million for Donald Trump and 13 million for Bernie Sanders have
voted for dramatic change but firing the ruling elites does not guarantee the result we seek or constitute a consensus on the direction we should take.

Members
of the press are already complaining that Trump isn't adequately informing the media
about his decisions as president-elect claiming it is a violation of
practices meant to ensure access and transparency. The relationship between Trump and the news media is as acrimonious as ever following his victory in Tuesday’s presidential election. The
Republican nominee frequently blasted the news media as “dishonest”
during his rallies, and crowds would chant slogans such as “CNN sucks”
in reaction to what they considered bias coverage of events. Trump
did not allow reporters to travel with him to Washington on
Thursday for meetings with President Obama and leaders in Congress, it was the White House that made arrangements to have a pool of journalists cover the
president-elect’s meeting with President Obama in the Oval Office.

Will Trump's Victory Be Accepted?

Articles have surfaced about how Trump must be on the outlook for Republican neocons that will try to worm their way into his administration while also dealing with the attempt by the Clinton and international
hedge fund tycoon George Soros to disrupt his presidency with a Purple Revolution. Recently when Hillary and her husband, former President Bill Clinton, entered
the ballroom of the New Yorker hotel in midtown Manhattan both were adorned in purple attire. A Clinton spokespeople
claimed it was to represent the coming together of Democratic-Blue
America and Republican-Red America into a united purple blend. Some people consider this
statement a complete ruse and see the Purple Revolution an effort to make the Trump administration a short one through street
protests and political disruption.

Mark my words the only thing we are guaranteed is that it will be interesting how events unfold and that since old habits die hard the media will continue to disparage Trump with jabs and barbs. The reality is little has changed and almost all the people who created
our problems remain entrenched in the system. Clearly, this will all confirm just how difficult it is to
drain a swamp when those who oppose you are busy stealing your pump,
this is the job Trump is faced with as he turns to governing a divided
country. Americans tend to overestimate the power of the Presidency and oversimplify the complexity of bringing about real change in a legal way. Washington is a snake pit and Trump would be wise not to discount the roadblocks being cast before him.

During the election, the media repeatedly painted trump supporters as less educated and unenlightened increasing the odds few people would aspire to join the movement. Ironically, enough of these deplorable souls chose to vote for an end to pointless failed
wars and interventions abroad as well as ending our bubble-based economic policy at
home. They revolted against the Wall Street and the bi-coastal elites who through their political connections endowed themselves with vast
financial windfalls while the 90% of us in Flyover America were left behind. The many households that struggle with stagnant wages, vanishing jobs, soaring
health costs, shrinking living standards and diminishing hope for the
future said enough is enough.

While it cannot be claimed as a mandate the voters have spoken in no uncertain terms and declared that they are fed-up with the arrogance of Washington politicians. The "rigged” system insiders have developed that touts one set of rules for establishment insiders
and another for everyone else was on full display in the constant drips of Wikileaks that included Clinton Foundation pay-to-play schemes, DNC insider communication, Podesta e-mails, and more. During the eight years, Obama has been in office, America doubled the National Debt to 20 trillion dollars. History will likely show it produced a false illusion of prosperity but little more. The issue directly in our path is whether Trump will be allowed an opportunity to govern or his efforts be sabotaged by those who have exploited us for so long.

Saturday, November 5, 2016

By not
demanding the right kind of growth and simply throwing money at
problems we have delayed and are adding to a much larger crisis lurking in the future. Many of those already concerned about the strength of the economy and they will find little comfort in recent remarks made by Oliver Blanchard. The well respected 67-year old former International Monetary Fund Chief Economist indicated the U.S. economy is not out of the woods and the Federal Reserve
should be sparing in their interest-rate hikes to guard against a
downturn. As
chief economist at the IMF in the post-financial era from 2008 until 2015 Blanchard is credited for moving the
IMF away from the view that fiscal austerity is always
the best medicine for an economy.

Debt Has Grown Faster Than GDP

His comments reinforce those made by Fed Chairwoman, Janet Yellen noting the benefits of a “high-pressure economy.” Blanchard went on to say allowing the
economy to run hot has more benefits than costs and that he’s less optimistic about the
U.S. economy, as consumers and businesses confront diminished
expectations about the future. Statements made by Yellen suggest that she agrees, at least in
some part, with former Treasury Secretary, Larry Summers, who said that
secular stagnation, or a lack of demand, is pushing down global growth. Yellen has said a disappointing economy may
force economists to think about the economy in new ways.

Before
the crisis, most economists thought the amount of output of goods and
services was primarily driven by supply, Yellen said. “This conclusion
deserves to be reconsidered in light of the failures of the level of
economic activity to return to its prerecession trend in most advanced
economies.” This line of reasoning is consistent with the Fed and the actions of central banks across the world. For years they have fomented policies to increase demand oblivious to the harm they were doing to the ability of markets to self-correct. Low-interest rates have punished savers, distorted markets, and caused
capital to be allocated in nonproductive ways.

Blanchard indicated a chief reason the economy is not growing faster is that over the past few
years several revisions lowering potential growth have created a situation where both people and
firms have arrived at a point that they say “well, why should we invest a lot, why
should we consume a lot?” This translates into linking our weak recovery to the anticipation of a mediocre future. Blanchard paints the somewhat patronizing picture that ordinary people and firmshave no clue about potential growth but weakness does affect their decisions and tends to hold back demand.. This means reduced investment by business and consumers buying less and saving reinforcing the cycle of slow growth.Like many politicians, Blanchard points to increasing public investment and spending on infrastructure as a way forward. Sadly this type of spending often leads to building bridges to nowhere and costly boondoggles.

Historically Low Rates Create New Problems

Several issues remain that will shape our economic future, such as, when rates will rise, how fast, and how far. I have to wonder how long the central banks across the world can continue their effort to create demand before some other event or crisis force them to chart a new path. History shows that on average there is about a 15% probability
every year a recession will occur, because of the extraordinary low interest rates coupled with expansive monetary policies, we have avoided a business cycle contraction for longer than normal and it seems we are on borrowed time, sooner or later a downturn will occur and it could be a doozy.

In the past, I have expressed concerns about the games being played with currencies and speculated how the failure of any of the four currencies that currently make up the bulk of world reserves would be very destabilizing. As long as the central banks behind these currencies move in the same direction and march in lockstep the integrity of this rather closed system may be able to remain intact. Still, worries exist as to just how much ammunition remains in the arsenals of the central banks and I find very troubling the argument that conditions remain too fragile to begin a return to historic norms. Also, questions remain as to whether the world can handle additional government debt when rates begin to rise. As the world economy matures creating an economic foundation that is balanced and sustainable over the long term is of major importance.

About Me

Bruce Wilds is a contractor that owns real estate in the Midwest, his holdings include apartments and office complexes. He is anchored to reality and the economy as he maintains, designs, and leases buildings. This has made him keenly aware of rapidly changing lifestyles, this blog incorporates many of the experiences and knowledge from his hands-on business style, extensive travels, and studies of history, politics and economics.